56% of Americans have no savings? Is this true

[ImGod]

A lot of people thought the best place to save their money was a home. They assumed a constant housing market expansion and bought more then they needed. If they managed to hold on to thier homes, I don't see them putting money into a savings account while they are still under water.

Gold and silver bullion doesn't show up on bank savings accounts either.

 

[TSwizzle]

I read this article claiming 56% of Americans have no savings

Well we're not being encouraged to save, are we?

There are tax breaks for savings in IRA and 401K retirement funds. Some employers make contributions to employees 401K so there is some encouragement.

 

[ronburgundy]

That would be a low estimate, but yes. Very few people I know can afford to save.

How did you determine they can't afford it? Are you saying that they all have nearly equal lifestyles and that lifestyle is so minimalist that nothing can be cut back? What mechanism is in play that is enforcing such equality among a majority of the population?

About 2/3 of Americans have non-mortage debt, so for most of them, cutbacks would still not lead to any savings, just less debt. Also, cutting back too much now to save now can actually harm you economically, if those cutback are on things that wind up having any kind of indirect long term economic, social, or psychological benefit to you or your kids.

 

[coloradoatheist]

Well we're not being encouraged to save, are we?

There are tax breaks for savings in IRA and 401K retirement funds. Some employers make contributions to employees 401K so there is some encouragement.

The article was only talking about bank savings account, not those retirement accounts.

 

[Loren Pechtel]

How did you determine they can't afford it? Are you saying that they all have nearly equal lifestyles and that lifestyle is so minimalist that nothing can be cut back? What mechanism is in play that is enforcing such equality among a majority of the population?

I can't speak for Skwerl, however ...

If people I know tell me they can't afford to save, I believe them, I don't means test them.

The people I know that "can't afford to save" certainly could--they actually have a spending problem. A perfect example is a woman who finished paying off her truck and thus decided it was time for a new vehicle. At the time we were driving a car that was older and with considerably more miles.

 

[TSwizzle]

There are tax breaks for savings in IRA and 401K retirement funds. Some employers make contributions to employees 401K so there is some encouragement.

The article was only talking about bank savings account, not those retirement accounts.

I see. It does seem like an awful lot of people don't have enough cash in savings to cover emergency financial events, $500 car repair etc.

 

[James Brown]

About 2/3 of Americans have non-mortage debt, so for most of them, cutbacks would still not lead to any savings, just less debt.

And lower interest payments, freeing up income for more savings.

Also, cutting back too much now to save now can actually harm you economically, if those cutback are on things that wind up having any kind of indirect long term economic, social, or psychological benefit to you or your kids.

Very true. But cell phones and cable channels and late-model vehicles surely don't fall into that category, do they?

If people don't have some kind of emergency savings, it's because they choose to spend their discretionary income elsewhere. Then, when the inevitable emergency occurs, they have no recourse but to borrow more money, thus digging their hole deeper.

Yes, some people are truly bad off--they work for minimum wage, they are saddled with debts due to high medical bills or unscrupulous family members, etc.--and they need and deserve help.

But I don't think 56% of Americans fall into that extreme category.

 

[ronburgundy]

And lower interest payments, freeing up income for more savings.

No. The interest on any debt will still be higher than the interest the get from savings. Thus, any $ the have that they don't need for immediate goods should be paid to lower their non-mortage debt further until its is gone. Putting it towards savings rather than any debt will leave them with less $ in the long run. Most Americans cannot afford to get out of debt, even with reasonable, non-future harming cutbacks on spending. Yes, they would still help themselves by such cutbacks, but the % of Americans with actual savings would not change much.

Also, cutting back too much now to save now can actually harm you economically, if those cutback are on things that wind up having any kind of indirect long term economic, social, or psychological benefit to you or your kids.

Very true. But cell phones and cable channels and late-model vehicles surely don't fall into that category, do they?

Cell phones most certainly do fall into that category. Cable Channels could, if used to gain relevant information about one's social and political world. In fact, even staying current on mainstream entertainment can matter. It impacts one's social networks and connections, which can impact economic opportunities in many ways. Late model cars are the least relevant and more harmful than useful in most cases, though can sometimes act much like one's "attire" at work, impacting perceptions that impact promotions, etc..
Living beyond one's immediate means, including in terms of "luxuries" has helped countless people that are doing well get there. The problem is that it is a gamble that can hurt more than it helps.

If people don't have some kind of emergency savings, it's because they choose to spend their discretionary income elsewhere. Then, when the inevitable emergency occurs, they have no recourse but to borrow more money, thus digging their hole deeper.
.

Keep in mind that the 56% includes all the people that did save something for emergencies but had that inevitable emergency recently (or just made a large neccessary purchase like housing, transportation, etc.) and have not rebuilt any real savings yet. Given that the median per adult income in the US is only $15k (pre-tax), and the median housing rent is $10,000 per year, it is not at all hard to imagine that the vast majority of that 56% would have no savings, even if they cut some discretionary spending to reduce their debts.

That said, I agree that many people are far too flippant with their spending, especially the middle-class. As a graduate student earning only $15k plus tuition in a major city around 1999, I emerged with $5k in savings after 6 years rather than the debt that most my peers had. That was due to frugality that I still have. My wife and I in our mid-40s are both professionals and yet have spent a combined $20k total on cars in our lifetimes (and still drive our 2000 Civic, despite it being a bit beat up looking). Our clothing budget is under $500 per year, and we grocery shop, based on sales, and eat better than most people who spend twice as much.

 

[James Brown]

No. The interest on any debt will still be higher than the interest the get from savings. Thus, any $ the have that they don't need for immediate goods should be paid to lower their non-mortage debt further until its is gone. Putting it towards savings rather than any debt will leave them with less $ in the long run.

It's definitely a trade-off. I used to have this mindset. For a while I had consumer loans and no savings. I put every extra dollar I could into my car loan to pay it off early. On a dollars-and-cents basis, that was the best thing to do in the long run. But before I could get to end of that long run, my car would need repairs. With no savings, I could only use a credit card to pay the bill. Thus, my debt load would only increase.

After enough of that, I changed tactics. Any extra money that I would have paid to my car loan I put into savings instead. Then, in the long run, when the car loan and the savings account are equal, I could opt to pay off the car loan in one stroke. But in the meantime, that money could serve as an emergency fund if need be. It's not like the car finance company will give me back my extra payments if I need them later to replace my broken refrigerator.

Yes, paying off debt makes more financial sense than banking any savings. But not incurring more debt makes the most sense of all.

Cell phones most certainly do fall into that category. Cable Channels could, if used to gain relevant information about one's social and political world.

We'll have to disagree on that one. A $200 iPhone 4 makes calls just as well as a $600 iPhone 6. Basic cable can provide you with news and documentaries. HBO can provide you with water-cooler fodder. Sure, maybe you're a television writer or an app developer, and you need to stay current. But I bet you can ride a bike and do pushups for less than the cost of gym fees.

Keep in mind that the 56% includes all the people that did save something for emergencies but had that inevitable emergency recently (or just made a large neccessary purchase like housing, transportation, etc.) and have not rebuilt any real savings yet.

Of course. Just like some people who are unemployed are so because they just quit one job and are starting another better one in a week. But those are small potatoes--the OP article is suggesting that more than one out of two Americans are living paycheck-to-paycheck. For some reason, it's all the bank's fault?

 

[ronburgundy]

Cell phones most certainly do fall into that category. Cable Channels could, if used to gain relevant information about one's social and political world.

We'll have to disagree on that one. A $200 iPhone 4 makes calls just as well as a $600 iPhone 6. Basic cable can provide you with news and documentaries.

You initially just dismissed cell phones and cable TV as generally irrelevant to anything that might impact one's financial outcomes. Sure, I agree that almost no one on Earth needs the most recent i Phone or is benefited in any tangible way beyond satisfying their shallow need to show off the latest gadget. Hell, I just bought my first smart phone 4 months ago and its a Moto Tracfone. But then, I work online via computer all the time, so I have minimal need to connect to the internet when not on my computer.

HBO can provide you with water-cooler fodder. Sure, maybe you're a television writer or an app developer, and you need to stay current.

Or maybe being able to socialize at the water cooler in any workplace increases your social network and exposure to opportunities.

But I bet you can ride a bike and do pushups for less than the cost of gym fees.

Sure, they "could", but would they actually work out as much and thus reduce health care costs and/or job loss? Personally, I am a misanthrope, so I would rather die of heart disease than have to be around the kind of people that would rather work out in public. However, for many people, the social aspect of the gym is critical to them exercising more and thus it reduces long term costs. Not to mention, the social networking that does happen at gyms, and thus exposure to opportunities. You cannot hear about a job opening with better pay from the rats in the basement where you do your pushups.

Keep in mind that the 56% includes all the people that did save something for emergencies but had that inevitable emergency recently (or just made a large neccessary purchase like housing, transportation, etc.) and have not rebuilt any real savings yet.

Of course. Just like some people who are unemployed are so because they just quit one job and are starting another better one in a week. But those are small potatoes--the OP article is suggesting that more than one out of two Americans are living paycheck-to-paycheck. For some reason, it's all the bank's fault?

I don't think the people that just spent what saving they had are small potatoes. They % that can only afford, even with frugality, to have a minimal "emergency" fund could eeasily be close to half. Of those, a single emergency drains their savings and it takes a good year plus to build anything back. So, over the course of a whole year, what % oof them have an emergency, which includes everthing from major car or home repair, health problem, bailing a friend or family member out who has no emergency savings, putting parents in a home or in the ground, having to move, loss of job, etc.. OF that 56%, there could by a good 1/3 of them that do save an emergency fund but are rebuilding it due to an emergency withing the last year. Keep in mind that people who earn below the median are those most likely to have emergencies in the first place. Their cars and homes are old and barely functioning, their family members most likely to suffer misfortune or wind up in jail, their health worse due to more stress and greater exposure to environmental toxins, etc..
When you are poor, "emergencies" happen all the time.

 

[James Brown]

We'll have to disagree on that one. A $200 iPhone 4 makes calls just as well as a $600 iPhone 6. Basic cable can provide you with news and documentaries.

You initially just dismissed cell phones and cable TV as generally irrelevant to anything that might impact one's financial outcomes. Sure, I agree that almost no one on Earth needs the most recent i Phone or is benefited in any tangible way beyond satisfying their shallow need to show off the latest gadget. Hell, I just bought my first smart phone 4 months ago and its a Moto Tracfone. But then, I work online via computer all the time, so I have minimal need to connect to the internet when not on my computer.

We could play this game all day. One person's necessity is another person's waste of money. If all I need to do to justify a luxury expense is to hypothesize another person's usage of that luxury for personal gain, then everything's off the table.

Do you think that 56% of Americans need to have premium cable packages--even if they can't afford them--or else they'll suffer "long term economic, social, or psychological" harm? (Your words in quotes.)

However, for many people, the social aspect of the gym is critical to them exercising more and thus it reduces long term costs. Not to mention, the social networking that does happen at gyms, and thus exposure to opportunities. You cannot hear about a job opening with better pay from the rats in the basement where you do your pushups.

So for those many people, they should have gym memberships, whether they can afford them or not?

I don't think the people that just spent what saving they had are small potatoes. They % that can only afford, even with frugality, to have a minimal "emergency" fund could easily be close to half.

Well, this could be easily tested, couldn't it? No more need to speculate and guess at the percentages. Just ask those people who have little in savings, "How much did you have in savings a year ago?" I'd expect the numbers are the same.

What's your solution? You said that for someone with excessive consumer debt and little savings, reducing expenditures won't help them save anything, and they'll suffer for the lack of luxury spending. So suppose someone makes $100,000 a year, and she spends $100,000 a year. She has $40,000 in credit card debt and five hundred bucks in the bank. What's your recommendation? Would you say that she is in sound financial health? That she's making good choices?

 

[Nice Squirrel]

That would be a low estimate, but yes. Very few people I know can afford to save.

How did you determine they can't afford it? Are you saying that they all have nearly equal lifestyles and that lifestyle is so minimalist that nothing can be cut back? What mechanism is in play that is enforcing such equality among a majority of the population?

Sorry poor choice of words on my part. Most people I know can only save very little due to expenses (childcare, housing medical, etc.), but as others have pointed out they probably could cut here and there.

And savings accounts are pretty bad ways to save money. You get a bigger return stuffing a mattress.

 

[Colonel Sanders]

People are bad with money. But I don't see that as something shameful.

Our economy is based on spending. We're bombarded with ads from morning until night to buy shit. And getting out of the house just once a week for entertainment adds up.

Clothes? It depends on where you work I guess, but for the most part you have to look decent, and that's not cheap. Personally, I wish we'd all adopt the 1970s version of future clothing by all wearing the same beige unisex leotard, but that's probably not gonna happen.

Personally, I don't do much. I get out once a month and I haven't bought new clothes since... shit. Last June or so.

I can save, but it ain't much.

I have $9,000 in a CD that "matures" in February for my daughter's car. I made $30 in interest on it last month. Woo!

Bonds, T-Bills, and even money market and CDs used to be safe, but productive vehicles at around 4-6%. My badass CD is paying 0.02%.

Anyway, what's the cure? How can we get people to better with their money?

Teach that shit from kindergarten to senior year of high school. A kid in 8th grade should know what a P/E ratio is and how to calculate one. I'm serious. By the time a kid is 15 they should know the difference between all the different kinds of ARMS and when they're appropriate to use when purchasing property---and when they're not.

We live in a capitalistic economy (in the U.S.) and the key to security is money. But we don't teach ourselves about it. I had to go self-educate but I still suck at it and lost a lot of money trying to figure it out along the way. I've tried to teach my own kids but their eyes just gloss over. So shove it down their throats for 12 years in school. Otherwise, this shaming of being bad with a buck will never end.

 

[TV and credit cards]

If I recall, savings data is collected from mortgage applications. As long as names are not put to the data, no foul. This is also how it is determined that people live paycheck to paycheck from every socioeconomic group. That is, people in more affluent neighborhoods tend to have about the same net worth as folks in poorer neighborhoods. Many people simply spend every dime they get their hands on and then some. They do not look at the total cost of something, they look at the monthly payment and without regard to the length of those payments.
Many people also do not realize that all the little things add up. They don't see the small amounts they spend throughout the day as adding up to much. I'm going through this with my daughter right now. Having her add up all those daily lunches at work she goes out for x 30 days. "Oh wow, dad." Yeah. And that's just lunch. I'm trying to get her to track a full month's of expenses so she can separate the necessities from the frivolities. That ain't working out. I think she's on to me and doesn't want to see what she knows she'll see.

 

[fast]

It's definitely a trade-off. I used to have this mindset. For a while I had consumer loans and no savings. I put every extra dollar I could into my car loan to pay it off early. On a dollars-and-cents basis, that was the best thing to do in the long run. But before I could get to end of that long run, my car would need repairs. With no savings, I could only use a credit card to pay the bill. Thus, my debt load would only increase.

After enough of that, I changed tactics. Any extra money that I would have paid to my car loan I put into savings instead. Then, in the long run, when the car loan and the savings account are equal, I could opt to pay off the car loan in one stroke. But in the meantime, that money could serve as an emergency fund if need be. It's not like the car finance company will give me back my extra payments if I need them later to replace my broken refrigerator.

Yes, paying off debt makes more financial sense than banking any savings. But not incurring more debt makes the most sense of all.

Nice!

One exception I would of recommended would have been to cap the savings. For instance, any money accumulated over the cap could have went to pay down the debt.

 

[Loren Pechtel]

The article was only talking about bank savings account, not those retirement accounts.

I see. It does seem like an awful lot of people don't have enough cash in savings to cover emergency financial events, $500 car repair etc.

Actually, it's quite possible to be financially prudent and not have cash on hand. All you need is readily available money. Use the credit card, sell some shares before the bill comes due. The person who is determined to make the absolute most of their assets will have little cash on hand.

 

[Loren Pechtel]

Very true. But cell phones and cable channels and late-model vehicles surely don't fall into that category, do they?

Actually, I would consider basic cell service (not a data plan!) mandatory for most people in the labor force these days. The others I certainly agree with you on.

If people don't have some kind of emergency savings, it's because they choose to spend their discretionary income elsewhere. Then, when the inevitable emergency occurs, they have no recourse but to borrow more money, thus digging their hole deeper.

Yes, some people are truly bad off--they work for minimum wage, they are saddled with debts due to high medical bills or unscrupulous family members, etc.--and they need and deserve help.

But I don't think 56% of Americans fall into that extreme category.

The one problem I have is with the notion that emergency savings must be checking or savings.

 

[Loren Pechtel]

No. The interest on any debt will still be higher than the interest the get from savings. Thus, any $ the have that they don't need for immediate goods should be paid to lower their non-mortage debt further until its is gone. Putting it towards savings rather than any debt will leave them with less $ in the long run. Most Americans cannot afford to get out of debt, even with reasonable, non-future harming cutbacks on spending. Yes, they would still help themselves by such cutbacks, but the % of Americans with actual savings would not change much.

I disagree. While you are right that paying down debt is better than savings so long as you have readily available credit that doesn't mean people can't crawl out of debt. People are trapped in debt because they don't want to give up the lifestyle things that are keeping them in debt.

Cell phones most certainly do fall into that category. Cable Channels could, if used to gain relevant information about one's social and political world. In fact, even staying current on mainstream entertainment can matter. It impacts one's social networks and connections, which can impact economic opportunities in many ways. Late model cars are the least relevant and more harmful than useful in most cases, though can sometimes act much like one's "attire" at work, impacting perceptions that impact promotions, etc..
Living beyond one's immediate means, including in terms of "luxuries" has helped countless people that are doing well get there. The problem is that it is a gamble that can hurt more than it helps.

Cable channels are a far inferior source of information to the internet.

The number of people that improve their lot by luxury purchases are very low.

Keep in mind that the 56% includes all the people that did save something for emergencies but had that inevitable emergency recently (or just made a large neccessary purchase like housing, transportation, etc.) and have not rebuilt any real savings yet. Given that the median per adult income in the US is only $15k (pre-tax), and the median housing rent is $10,000 per year, it is not at all hard to imagine that the vast majority of that 56% would have no savings, even if they cut some discretionary spending to reduce their debts.

I have a big problem with those numbers.

1) They only make sense if you're counting the whole population including many not in the labor force at all.

2) Median != mean. You'll get a very different picture of you look at the whole graph.

3) An awful lot of that housing will have more than 1 person in it.

That said, I agree that many people are far too flippant with their spending, especially the middle-class. As a graduate student earning only $15k plus tuition in a major city around 1999, I emerged with $5k in savings after 6 years rather than the debt that most my peers had. That was due to frugality that I still have. My wife and I in our mid-40s are both professionals and yet have spent a combined $20k total on cars in our lifetimes (and still drive our 2000 Civic, despite it being a bit beat up looking). Our clothing budget is under $500 per year, and we grocery shop, based on sales, and eat better than most people who spend twice as much.

Yeah, that's what we are saying about spending. About $50k on cars for us but as a one-car household and a strong need for reliable transportation we have had to spend more. Also, we recently replaced our 2000 Saturn when it developed an oil leak that would have cost substantially more to fix than the value of the car. I've never gotten rid of a car at less than 90k miles and only one has bit fit for more than the junkyard. (Although a friend did buy one because he did his own work--it was not economic to repair otherwise.)

Shopping based on sales rather than recipes can really cut your grocery bill but so few do it.

 

[Loren Pechtel]

Clothes? It depends on where you work I guess, but for the most part you have to look decent, and that's not cheap. Personally, I wish we'd all adopt the 1970s version of future clothing by all wearing the same beige unisex leotard, but that's probably not gonna happen.

Personally, I don't do much. I get out once a month and I haven't bought new clothes since... shit. Last June or so.

I'll admit I've had an advantage there--I never deal with customers and programmers are known for not dressing up anyway. In the last year I've bought socks and some cold weather gear.

I have $9,000 in a CD that "matures" in February for my daughter's car. I made $30 in interest on it last month. Woo!

Bonds, T-Bills, and even money market and CDs used to be safe, but productive vehicles at around 4-6%. My badass CD is paying 0.02%.

Anyway, what's the cure? How can we get people to better with their money?

Even if you're not earning anything on it you should still have some savings.

 

[Loren Pechtel]

If I recall, savings data is collected from mortgage applications. As long as names are not put to the data, no foul.

A horrible source of data--it's going to be skewed.

This is also how it is determined that people live paycheck to paycheck from every socioeconomic group. That is, people in more affluent neighborhoods tend to have about the same net worth as folks in poorer neighborhoods. Many people simply spend every dime they get their hands on and then some. They do not look at the total cost of something, they look at the monthly payment and without regard to the length of those payments.

This x 100.

Many people also do not realize that all the little things add up. They don't see the small amounts they spend throughout the day as adding up to much. I'm going through this with my daughter right now. Having her add up all those daily lunches at work she goes out for x 30 days. "Oh wow, dad." Yeah. And that's just lunch. I'm trying to get her to track a full month's of expenses so she can separate the necessities from the frivolities. That ain't working out. I think she's on to me and doesn't want to see what she knows she'll see.

Yup. Anyone having any financial difficulty should keep a notebook (or an electronic equivalent) with them all the time and write down in detail everything they spend. The results are usually shocking.